By Goran Mijuk

While the insurer is otherwise struggling with low interest rates and lukewarm demand for standard life policies, rich clients have stormed its offices in Luxembourg, Liechtenstein and Singapore.

Premiums and fees in this business segment almost doubled to about 3 billion Swiss francs and helped the insurer post a profit with these products for the first time since they were launched some six years ago.

Bloomberg

Swiss Life’s success with these so-called insurance wrappers is in part due to the plight of Swiss private banks, which clients are treating with skepticism following the international crackdown on tax havens such as Switzerland, Liechtenstein and Luxembourg.

There is little to suggest that the party is over for Swiss Life. According to estimates by Schweizer Versicherung, a Swiss insurance publication, insurers could attract between 250 billion to 500 billion Swiss francs in assets from wealthy clients in the years to come, up from a currently estimated 100 billion Swiss francs, as rich people transfer funds from private banks, trusts and foundations to insurers in an effort to minimize taxes.

But while the wrappers are meeting with brisk demand and may help Swiss Life bridge a likely long-term low interest phase that will sour its standard life policies, these relatively new products come with a risk.

Part of the attractiveness of insurance wrappers for wealthy clients stems from the fact that owners of such policies can deduct taxes more easily because wrappers are treated like insurance products rather than investment-type products. Wrappers are financial instruments that combine characteristics of insurance policies and investment vehicles.

One concern is that some clients may use these wrappers to siphon off funds from undeclared sources. It was precisely this concern that overshadowed the private banking business for years and triggered a flurry of strict oversight rules in Switzerland.

Swiss Life is diligent when it comes to explaining these products to its clients and is making sure that it is conforming to local tax rules. Likewise, competitor Baloise Holding AG, which has had huge success with its own wrappers, is shrugging off concerns that these products bear any such risks.

However, both companies are aware that the term wrapper comes with negative connotations and sell these products under such names as private-placement life insurance and investment-linked life insurance.

Investors, meanwhile, need to be on the alert when novel products such as wrappers meet with unabated success. Success in finance always comes at a price, and investors have already seen how the ingenuity of financial wizards can bring the global economy to its knees.

Comments (2 of 2)

I can see why wealthy individuals would be interested in a product like this and perhaps Swiss Life will continue to make out well with this. This product should still be met with skepticism especially because regulators are watching closely.

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